Hewlett-Packard Should Break Up to Boost Value, UBS Says

A shopper looks at a display of Hewlett-Packard Co. TouchPads in a Best Buy store in East Palo Alto, California. Photographer: David Paul Morris/Bloomberg

Oct. 8 (Bloomberg) -- Hewlett-Packard Co. should break
itself up, separating its division that sells printers and
personal computers from the one that caters to businesses, UBS
AG analysts wrote in a research report today.

The company would be worth more than $20 a share if its
businesses operated independently, the analysts wrote, compared
with today’s closing price of $14.46.

“HP, with its fully developed enterprise and consumer
businesses, should split up in order to realize greater value,”
wrote the analysts led by Steven Milunovich, who have a sell
rating on Hewlett-Packard. “HP’s units are not minnows but
rather they are whales packed into the same pond.”

Hewlett-Packard dropped 13 percent on Oct. 3 after
forecasting profit for next year that missed analysts’
predictions, and Chief Executive Officer Meg Whitman said the
company won’t quickly rebound from the slump that has cut sales
for four straight quarters. Whitman has said that she won’t spin
off the PC business, a move contemplated by her predecessor, Leo
Apotheker.

UBS in its report said the computer company would lose
purchasing power in a breakup, while gaining “focus” and
branding power, an idea Hewlett-Packard refuted.

“No matter how you look at it we are confident that HP is
stronger together than apart,” spokesman Michael Thacker said
in a statement. “The company’s operations across business units
are deeply integrated and our customers have told us that they
want One HP.”

Activist Pressure

The company may need to reconsider that stance and break
itself up, “prompted by activists or private equity,”
according to UBS.

CEO for a year, Whitman has been trying to revive growth
after years of management upheaval, shifts in strategy and late
entry to key markets like tablet computers.

“Our customers make long-term investments. This start-stop
of the last three years -- you can’t run the railroad that
way,” Whitman told analysts on Oct. 3. “The two growth engines
of our company are going to be the software business and the
enterprise business.”

At the company’s current market capitalization, investors
are essentially “getting the PC and printer businesses for
free,” Milunovich wrote. The enterprise value of the company’s
parts, when accounting for cash and debt, could be $20.97 a
share next year, he said.

“Although we think HP is in denial about the growth
prospects for PCs and possibly printers, the fact is that HP has
substantial assets,” Milunovich wrote.

Hewlett-Packard, the largest maker of printers and PCs,
will earn $3.40 to $3.60 a share, excluding costs, for the 2013
fiscal year, the Palo Alto, California-based company said at the
Oct. 3 presentation. Analysts on average had estimated profit of
$4.16 a share, data compiled by Bloomberg show.

Hewlett-Packard slipped 1.8 percent at the close in New
York. The shares have lost 44 percent of their value this year.